Condo market still shaky

Al Thompson, vice president of construction for the downtown high rise condo project Vantage Pointe looks out over the city from a penthouse on Tuesday, May 5, 2009. K.C. Alfred/The San Diego Union-Tribune

Al Thompson, vice president of construction for the downtown high rise condo project Vantage Pointe looks out over the city from a penthouse on Tuesday, May 5, 2009. K.C. Alfred/The San Diego Union-Tribune

DOWNTOWN SAN DIEGO  When it comes to downtown San Diego, it’s a tale of two condo markets. Sales of luxury units are slow. But the midlevel market is picking up.

Just ask Sherman Harmer.

His company, Urban Housing Partners, helped develop two downtown projects: Smart Corner, which has condos selling for as low as $170,000, and Sapphire Tower, a luxury property that offers penthouse units listed for more than $2 million.

Units at Smart Corner, he said, are moving pretty well. In May, 12 condos sold at the location, says a report by The Mark Company, a consulting firm. At Sapphire Tower, just three units sold in the same month, according to the most recent data available.

Jim Abbott of ARG Abbott Realty Group, which specializes in the downtown market, said that because of strict lending, sales for high-end condos sales are dormant. Since the subprime crisis, banks, which were criticized for lending too freely, have now tightened up their standards.

“It is very, very quiet,” Abbott said. “National lenders have effectively redlined the condo market — they just won’t lend.”

At the lower end? “There is a lot of activity,” Abbott said, consisting mostly of first-time homebuyers who qualify for government-backed loans.

No doubt the number of condos selling in downtown San Diego has risen ﻿recently. In the 92101 ZIP code, 135 new homes — which are almost exclusively condos in that area — sold in the second quarter, says real estate tracking firm MDA DataQuick. That was more than a 48 percent increase from a year ago and up more than 53 percent from the previous quarter. Resale condos numbers also rebounded, with 235 units selling in the second quarter, a 42 percent jump from the previous year and a 48 percent increase from the first quarter.

As for prices? They have a long way to go. The median price for condos in the 92101 ZIP code are still off their peak prices — down almost 45 percent for new condos from 2008 and more than 53 percent for resale condos from 2004 — says MDA DataQuick. For the second quarter, the median price for a new home or condo in downtown was $434,500, a 20 percent drop from the same time last year. The median price for a resale condo was $315,000, a 4 percent dip from last year.

Where the condo market goes from here, however, is a little cloudy. Harmer said he believes that prices are rebounding, up about 10 percent to 12 percent from what he believes was the trough last year. He also warned that because there are few to no new condo projects being built downtown, supply will eventually become an issue.

Alan Mark, president of The Mark Company, which is helping market the Bayside at the Embarcadero condo project, said 43 new condos sold in May. By his count, there are about 437 new condos still available downtown. If, and it’s a big if, new condos continue to sell at that clip, it means there will be no new inventory in about 13 months, he said.

While there are plenty of condo projects approved — which will add close to 4,000 units — no one is building because construction loans are near impossible to get. It doesn’t help that it now costs more to build condos — luxury or otherwise — than developers can sell them for, Harmer said.

“Any time you get restricted supply in the market, it goes back to the whole concept of supply and demand,” Harmer said.

Not everyone is so optimistic.

Foreclosures — as well as property owners who are waiting for the market to improve before they put their condo on the market — could affect downtown’s condo inventory. Foreclosures have decreased downtown, dropping more than 58 percent from June 2009, when there were 82 defaults compared to 34 in June this year. But Abbott said many owners, especially those of upscale condos, are stuck.

“At the high end you’re looking at a short sale or hanging on to it,” he said.

The pressure on the luxury units has ramifications for the entire downtown condo market, Abbott said. Current condo owners can’t move up to pricier digs and the lack of financing for jumbo loans, or loans that are more than $697,500, is limiting the buying pool.